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You can’t do much with dopes

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by Peter Switzer

Realistically my job today is to hold your hand as our investments, our wealth and our immediate future is held to ransom by a bunch of morons on Capitol Hill in Washington. These are virtually the same group of nincompoops who thought it was OK to run an economy with sub-prime loans with a poorly regulated financial system.

Don’t get me wrong – I love going to America and they have some endearing characteristics but their leadership is conflicted and they suffer from the fact they don’t confront the brutal truth because they don’t look outside their narrow ‘world’ called the US of A. What other country has a World Series with the world not participating? But I digress and I could go on but I shall refrain.

This insular thinking extends to their politicians who show no regard to the financial implications of their selfish posturing to position themselves for next year’s election. Currently, the problem has been made worse by the arrival of the Tea Party, an extreme rightwing arm of the Republicans, who have a simplistic political agenda that makes Pauline Hanson look like a Rhodes Scholar!

What you have to remember is that the third and fourth years of a presidential cycle see the money supply grow in the third year. We saw this with QE2 and this produces growth in both the third and fourth years, which helps a first-term president get re-elected.

So the more restrictive the Republicans can be on the economy now, the harder it will be for Obama to be re-elected. The Republicans say no to tax increases on the rich because that would help Obama look after his poorer Americans but it would hurt the Republican’s constituency.

A non-politicised economist would cut spending and raise taxes to help the US tackle their debt/deficit problems but this objectivity has no chance in this highly charged debate as an election year looms in 2012.

In summary, a compromise to raise the nation's $14.3 trillion debt ceiling by 2 August to avert a default and global financial chaos does not look likely anytime soon.

So, what do we do? Sell? Or hold?

If you are a trader, you could sell everything and wait, hoping for a crash to buy in at the bottom. If you are a long-term investor, you could do that as well but I am sticking to my guns. A solution has to be reached – not even US politicians could be stupid enough to create a crash.

The interesting test for Obama will be if he actually caves into the Republicans for the sake of his country, his economy and the stock market which impacts on both the wealth of Americans and the health of their corporate sector.

Given the Republicans’ bone stupidity and their conniving politicisation of a difficult situation, Obama has to avert a default and hopefully stave off a downgrade from the debt ratings agency.

History might show that Obama’s strongest action was to capitulate for the sake of his country.

Note CNBC’s highly emotional commentator Jim Cramer who sees rough seas ahead but is not a stock seller. “I am staying on the ship,” he added. “You should, too.”

However, Dick Bove, the Rochdale Securities analyst, is more negative and recommends suspending investing.

We are in unchartered waters but as a long-term investor, I am watching and waiting for the time when companies I like go to silly prices. Frankly, I wish this wasn’t happening because the scope for a good second half on the stock market is possible but we have to get over this hurdle first.

So in summary – I am punting on the dopes in Congress but I don’t feel comfortable about it!

Published on: Thursday, July 28, 2011

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